Inco (INCLF) 8-K Financial Statements and Exhibits

NOTE: The following compilation report is provided solely in order to comply with applicable requirements of Canadian securities laws. It should be noted that to report in accordance with Public Company Accounting Oversight Board Auditing Standards (PCAOBAS) on a compilation of pro forma financial statements an examination greater in scope than that performed under Canadian standards would be required.

April 11, 2006

To the Board of Directors of Inco Limited

We have read the accompanying unaudited pro forma consolidated balance sheet of Inco Limited (the “Company”) as at December 31, 2005 and the unaudited pro forma consolidated statement of earnings for the year then ended, and have performed the following procedures.

1.	Compared the figures in the columns captioned “Inco” to the audited consolidated financial statements of the Company as at December 31, 2005 and for the year then ended, and found them to be in agreement.
2.	Compared the figures in the columns captioned “Falconbridge” to the audited consolidated financial statements of Falconbridge Limited as at December 31, 2005 and for the year then ended, and found them to be in agreement.
3.	Made enquiries of certain officials of the Company who have responsibility for financial and accounting matters about:

(a)	the basis for determination of the pro forma adjustments; and
(b)	whether the pro forma consolidated financial statements comply as to form in all material respects with the regulatory requirements of the various Securities Commissions and similar regulatory authorities in Canada.
The officials:
(a)	described to us the basis for determination of the pro forma adjustments, and
(b)	stated that the pro forma consolidated financial statements comply as to form in all material respects with the regulatory requirements of the various Securities Commissions and similar regulatory authorities in Canada.

4.	Read the notes to the pro forma consolidated financial statements, and found them to be consistent with the basis described to us for determination of the pro forma adjustments.
5.	Recalculated the application of the pro forma adjustments to the aggregate of the amounts in the columns captioned “Inco” and “Falconbridge” as at December 31, 2005 and for the year then ended, and found the amounts in the column captioned “Pro forma Inco” to be arithmetically correct.

A pro forma financial statement is based on management assumptions and adjustments which are inherently subjective. The foregoing procedures are substantially less than either an audit or a review, the objective of which is the expression of assurance with respect to management’s assumptions, the pro forma adjustments, and the application of the adjustments to the historical financial information. Accordingly, we express no such assurance. The foregoing procedures would not necessarily reveal matters of significance to the pro forma consolidated financial statements, and we therefore make no representation about the sufficiency of the procedures for the purposes of a reader of such statements.

(Signed)PricewaterhouseCoopers llp
Chartered Accountants
Toronto, Ontario

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.

     The following unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial condition of the consolidated entities that would have been achieved if the offer made by Inco Limited (“Inco”) to purchase all of the outstanding common shares of Falconbridge Limited (“Falconbridge”) dated October 24, 2005, as extended December 14, 2005, January 19, 2006 and February 27, 2006 (collectively, the “Offer”) had been completed during the period presented, nor is the selected pro forma consolidated financial information necessarily indicative of the future operating results or financial position of the consolidated entities. The pro forma consolidated financial information does not reflect (1) any special items such as payments pursuant to change of control provisions or integration costs which may be incurred as a result of the acquisition, and does not give effect to operating efficiencies, cost savings and synergies that are expected to result from the acquisition, (2) the impact of undertakings that Inco is prepared, as may be required, to make in order to address regulatory clearance requirements, as there are no current agreements providing for implementation of such undertakings which, however, are expected to be carried out after the completion of the Offer, or (3) no adjustments have been made to eliminate historical sales between Inco and Falconbridge as the amounts are not significant.

INCO LIMITED

PRO FORMA CONSOLIDATED BALANCE SHEET
As at December 31, 2005
(unaudited)
(millions of US dollars)

					Pro Forma
					Adjustments			Pro Forma
	Inco		Falconbridge		(Note 3(a))			Inco
ASSETS
Current assets
Cash and cash equivalents	$	958	$	886	$	(34	)	$	1,810
Accounts receivable		673		1,007		—			1,680
Inventories		996		1,708		270			2,974
Other		68		—		—			68
Total current assets		2,695		3,601		236			6,532
Property, plant and equipment and other non-current assets		9,315		8,817		8,777			26,909
Total assets	$	12,010	$	12,418	$	9,013		$	33,441
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Long-term debt due within one year	$	122	$	353	$	1,139		$	1,614
Other current liabilities		1,043		1,691		—			2,734
Total current liabilities		1,165		2,044		1,139			4,348
Other liabilities
Long-term debt(1)		1,852		3,474		1,453			6,779
Deferred income and mining taxes		2,018		1,156		1,858			5,032
Other long-term liabilities		1,031		659		587			2,277
Total liabilities		6,066		7,333		5,037			18,436
Minority interest		761		54		326			1,141
Shareholders’ equity
Convertible debt		362		—		—			362
Common shareholders’ equity
Common shares issued and outstanding		3,000		4,264		4,364			11,628
Preferred shares		—		326		(326	)		—
Warrants		62		—		—			62
Contributed surplus		578		47		6			631
Retained earnings		1,181		154		(154	)		1,181
Currency translation account		—		240		(240	)		—
		4,821		5,031		3,650			13,502
Total shareholders’ equity		5,183		5,031		3,650			13,864
Total liabilities and shareholders’ equity	$	12,010	$	12,418	$	9,013		$	33,441

(1) Included in long-term debt are $750 million of junior preference shares (series 1, 2, and 3). Falconbridge has announced that $500 million of these junior preference shares will be redeemed on April 16, 2006. The remaining $250 million are intended to be refinanced subsequent to the acquisition of control of Falconbridge by Inco.

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INCO LIMITED

PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
Year ended December 31, 2005
(unaudited)
(millions of US dollars)

					Pro Forma					Pro Forma
	Inco		Falconbridge		Adjustments			Note 3		Inco
Revenues
Net sales	$	4,518	$	8,148	$	—				$	12,666
Cost and operating expenses (income)
Cost of sales and other expenses, excluding depreciation, depletion and amortization		2,633		5,773		40			b, c, f		8,446
Depreciation, depletion and amortization		256		555		197			d		1,008
Selling, general and administrative		207		80		17			e		304
Research, development and exploration		78		59		—					137
Currency translation adjustment		59		—		—					59
Interest expense		26		152		118			g		296
Asset impairment charge		25		—		—					25
		3,284		6,619		372					10,275
Other income, net		83		17		—					100
Earnings before income and mining taxes and minority interest		1,317		1,546		(372	)	��			2,491
Income and mining taxes		408		511		(111	)		i		808
Earnings before minority interest		909		1,035		(261	)				1,683
Minority interest		73		155		(123	)		h		105
Net earnings from continuing operations		836		880		(138	)				1,578
Loss on discontinued operations, net of tax		—		8		—					8
Net earnings		836		872		(138	)				1,570
Dividends on preferred shares		—		17		(17	)		j		—
Net earnings applicable to common shares	$	836	$	855	$	(121	)			$	1,570
Net earnings per common share
Basic	$	4.41								$	4.07
Diluted	$	3.75								$	3.73

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INCO LIMITED

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(millions of US dollars, except per share amounts)

1.	BASIS OF PRESENTATION
	The unaudited pro forma consolidated financial statements of Inco Limited (“Inco”) have been prepared in accordance with generally accepted accounting principles in Canada. These unaudited pro forma consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Inco as at and for the year ended December 31, 2005, including the related notes thereto.
	The unaudited pro forma consolidated financial statements have been prepared assuming that the acquisition of Falconbridge Limited (“Falconbridge”) had been completed as of January 1, 2005 for the consolidated statement of earnings and as of December 31, 2005 for the consolidated balance sheet.
	These unaudited pro forma consolidated financial statements are not intended to reflect the financial position and results of operations which would have actually resulted had the transaction and other adjustments been effected on the dates indicated. Further, the pro forma results of operations are not necessarily indicative of the results of operations that may be obtained by Inco in the future.
2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	The unaudited pro forma consolidated financial statements have been compiled using the significant accounting policies as set out in the audited consolidated financial statements of Inco for the year ended December 31, 2005 which, based on publicly available information, are assumed to be substantially similar to the significant accounting policies as set out in the audited consolidated financial statements of Falconbridge for the year ended December 31, 2005. Upon consummation of the transaction, the accounting policies will be formally conformed and it is possible that adjustments may result .
3.	PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
	The pro forma consolidated financial statements include the following pro forma assumptions and adjustments:

(a)

The acquisition is accounted for using the purchase method of accounting, whereby Falconbridge’s assets and liabilities are revalued to their fair value and its shareholders’ equity is eliminated. Inco’s assets and liabilities are not revalued. The pro forma adjustments reflect Inco’s acquisition of 100 per cent of Falconbridge’s net assets at their fair values as at December 31, 2005 and the accounting for Falconbridge as a wholly-owned subsidiary. Falconbridge’s interest in joint ventures in which it has joint control are reflected using the proportionate consolidation method.

The determination of the purchase price, based on management’s preliminary estimate, is as follows:

Purchase Price
Consideration in Inco common shares	$	8,628
Consideration in Inco options issued		52
Cash		2,464
Transaction costs		110
Total	$	11,254

The purchase price was calculated using a price of $43.95 for each Inco common share issued which represents the weighted average Inco share price over the five day period extending from October 6, 2005 to October 13, 2005, the two days before and the two days after the date of announcement. The cash portion of the purchase price will be financed through committed loan facilities.

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The allocation of the purchase price, based on management’s preliminary estimate, is as follows:

Allocation of Purchase Price

			Fair Value		Purchase Price
	Book Value		Increment		Allocation
Assets
Cash and cash equivalents	$	962	$	—	$	962
Accounts receivable		1,007		—		1,007
Inventories		1,708		270		1,978
Property, plant and equipment and other non-current assets		8,817		8,777		17,594
Total assets	$	12,494	$	9,047	$	21,541
Liabilities
Long-term debt due within one year	$	353	$	—	$	353
Other current liabilities		1,691		—		1,691
Long-term debt		3,474		129		3,603
Deferred income and mining taxes		1,156		1,858		3,014
Other long-term liabilities		659		587		1,246
Minority interest		380		—		380
Total liabilities	$	7,713	$	2,574	$	10,287
Total net assets purchased	$	4,781	$	6,473	$	11,254

The book value of Falconbridge, as shown above:

• Reflects Falconbridge’s stated book values as at December 31, 2005;

• Reflects the assumed exercise of vested stock options; and

• Reflects the reclassification of the equity portion of preferred shares to minority interest.

This allocation is based upon preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets to be acquired and the liabilities to be assumed. The actual fair values of the assets and liabilities will be determined as of the date of acquisition and may differ materially from the amounts disclosed above in the assumed pro forma purchase price allocation due to the change in fair values of the assets and liabilities between December 31, 2005 and the date of the transaction, and as further analysis is completed. The actual allocation of the purchase price may result in different adjustments being expensed in the consolidated statement of earnings.

(b)	The increase in cost of sales and other expenses reflects the elimination of deferred gains on derivative contracts on the pro forma consolidated statements of earnings. The deferred gains arise from derivative contracts that qualified for hedge accounting and were realized as a reduction of the cost of operations over the original delivery schedule of contracts. The gains would not have been realized in the year ended December 31, 2005 since the purchased derivative contracts would have been fair valued as of January 1, 2005.
(c)	The decrease in cost of sales and other expenses reflects the elimination of amortized past service costs and amortized net actuarial losses relating to post retirement benefits which were expensed in the year ended December 31, 2005.
(d)	Represents the amortization of the preliminary fair value increment allocated to operating capital assets. The pro forma amortization excludes the total amount of the purchase price allocation not subject to amortization of approximately $2.4 billion as it has been allocated to non-operating assets. On finalization of the purchase price allocation, if this amount is allocated to operating assets, pro forma amortization would change by approximately $104 million, before taxes, for the year ended December 31, 2005. Pro forma amortization and the above noted sensitivity have been based on a remaining weighted average estimated economic life of 23 years, and a reduction of one year in the weighted average estimated economic life would alter pro forma amortization by $28 million, before taxes, for the year ended December 31, 2005.
(e)	The increase in selling, general and administrative expenses reflects the expense relating to the expected exchange of stock options to be issued pursuant to the acquisition of Falconbridge.
(f)	The increase in cost of sales and other expenses reflects the amortization of the allocation of the purchase price to equity accounted investments.

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(g)	The increase in interest expense reflects the issuance of CDN$2.87 billion of debt in connection with the acquisition of Falconbridge and the amortization of the fair market value increment related to the Falconbridge debt.
(h)	The adjustment reflects the elimination of the Falconbridge minority interest in earnings assuming that Falconbridge and Noranda were amalgamated at January 1, 2005.
(i)	The adjustment reflects the tax effect on the above adjustments.
(j)	The adjustment reflects the reclassification of preferred share dividends to minority interest.

4.	ITEMS NOT ADJUSTED
	The pro forma consolidated financial information does not reflect (1) any special items such as payments pursuant to change of control provisions or integration costs which may be incurred as a result of the acquisition, and does not give effect to operating efficiencies, cost savings and synergies that are expected to result from the acquisition, (2) the impact of undertakings that Inco is prepared, as may be required, to make in order to address regulatory clearance requirements, as there are no current agreements providing for implementation of such undertakings which, however, are expected to be carried out after the completion of the Offer or (3) no adjustment has been made to eliminate historical sales between Inco and Falconbridge as the amounts are not significant.
5.	PRO FORMA EARNINGS PER SHARE
	Earnings per share computation for the year ended December 31, 2005

Basic pro forma earnings per share computation
Numerator:
Pro forma net earnings	$	1,570
Pro forma earnings applicable to common shares	$	1,570
Denominator (thousands of shares):
Inco shares outstanding		189,425
Common shares issued to Falconbridge shareholders		196,309
Pro forma weighted-average common shares outstanding		385,734
Basic pro forma earnings per common share	$	4.07
Diluted pro forma earnings per share computation
Numerator:
Pro forma net earnings	$	1,570
Dilutive effects of convertible debentures		6
Pro forma net earnings applicable to common shares, assuming dilution	$	1,576
Denominator (thousands of shares):
Pro forma Inco shares outstanding		385,734
Dilutive effect of securities:
Convertible debentures		31,247
Stock options		1,008
Warrants		4,218
Stock options issued on transaction		213
Pro forma weighted-average common shares outstanding		422,420
Diluted pro forma earnings per share	$	3.73

6.

SUBSEQUENT EVENT

On March 16, 2006 Falconbridge announced that it intends to redeem $500 million of its junior preference shares (Series 1,2 and 3). The junior preference shares will be redeemed on April 16, 2006 from holders of record on March 22, 2006. Internal cash resources are intended to be used to fund the redemption. In the pro forma consolidated balance sheet as at December 31, 2005 there is $750 million of junior preference shares (series 1, 2 and 3) in long-term debt.

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